Legal rules and principles bearing on business organizations and commercial matters. It regulates various forms of legal business entities, including sole proprietors, partnerships, registered companies with limited liability, agents, and multinational corporations. Nearly all statutory rules governing business organizations are intended to protect creditors or investors. In addition, specific bodies of law regulate commercial transactions, including the sale and carriage of goods (terms and conditions, specific performance, breach of contract, insurance, bills of lading), consumer credit agreements (letters of credit, loans, security, bankruptcy), and relations between employers and employees (wages, conditions of work, health and safety, fringe benefits, and trade unions). It is a broad and continually evolving field. Seealso agency; corporation; debtor and creditor; intellectual property; labour law.
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Acquisition of trade secrets from business competitors. Industrial spying is a reaction to the efforts of many businesses to keep secret their designs, formulas, manufacturing processes, research, and future plans. Trade secrets may find their way into the open market through disloyal employees or through various other means. Penalties against those found guilty range from an injunction against further use of the knowledge to substantial damages. Seealso patent.
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Raising and managing of funds by business organizations. Such activities are usually the concern of senior managers, who must use financial forecasting to develop a long-term plan for the firm. Shorter-term budgets are then devised to meet the plan's goals. When a company plans to expand, it may rely on cash reserves, expected increases in sales, or bank loans and trade credits extended by suppliers. Managers may also decide to raise long-term capital in the form of either debt (bonds) or equity (stock). The value of the company's stock is a constant concern, and managers must decide whether to reinvest profits or to pay dividends. Other duties of financial managers include managing accounts receivable and fixing the optimum level of inventories. When deciding how to deploy corporate assets to increase growth, financial managers must also consider the benefits of mergers and acquisitions, analyzing economies of scale and the ability of businesses to complement each other. Seealso corporate finance; inventory.
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Periodic fluctuation in the rate of economic activity, as measured by levels of employment, prices, and production. Economists have long debated why periods of prosperity are eventually followed by economic crises (stock-market crashes, bankruptcies, unemployment, etc.). Some have identified recurring 8-to-10-year cycles in market economies; longer cycles have also been proposed, notably by Nikolay Kondratev. Apart from random shocks to the economy, such as wars and technological changes, the main influences on the level of economic activity are investment and consumption. An increase in investment, as when a factory is built, leads to consumption because the workers employed to build the factory have wages to spend. Conversely, increases in consumer demand cause new factories to be built to satisfy the demand. Eventually the economy reaches its full capacity, and, with little free capital and no new demand, the process reverses itself and contraction ensues. Natural fluctuations in agricultural markets, psychological factors such as a bandwagon mentality, and changes in the money supply have all been proposed as explanations for initial changes in investment and consumption. After World War II many governments used monetary policy to moderate the business cycle, aiming to prevent the extremes of inflation and depression by stimulating the national economy in slack times and restraining it during expansions. Seealso productivity.
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The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope — the singular usage (above) to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the music business" and compound forms such as agribusiness, or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate.
Business Studies, the study of the management of individuals to maintain collective productivity in order to accomplish particular creative and productive goals (usually to generate profit), is taught as an academic subject in many schools.
Although forms of business ownership vary by jurisdiction, there are several common forms:
For a country-by-country listing of legally recognized business forms, see Types of business entity.
There are many types of businesses, and, as a result, businesses are classified in many ways. One of the most common focuses on the primary profit-generating activities of a business:
There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.
Most businesses must accomplish similar functions regardless of size, legal structure or industry. These functions are often organized into departments. Common departments include (but are not limited to): Human Resources : Typically responsible for hiring, firing, payroll, benefits, etc. Finance : responsible for managing the enterprises financial resources
Management is sometimes listed as a "department" but typically refers to the top level of leadership within the business regardless of their functional role.
Many businesses are operated through a separate entity such as a corporation, limited partnership or limited liability company. Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person." This means that unless there is misconduct, the owner's own possessions are strongly protected in law, if the business does not succeed.
Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.
A single person who owns and runs a business is commonly known as a sole proprietor, whether he or she owns it directly or through a formally organized entity.
A few relevant factors to consider in deciding how to operate a business include:
Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization.
As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (OSHA or Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time.
In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments who just want your money. Professions that require special licenses run the gamut from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.
Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.
Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets have at least one.
Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies.
As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.
In Thailand, for example, it is necessary to register a particular amount of capital for each employee, and pay a fee to the government for the amount of capital registered. There is no legal requirement to prove that this capital actually exists, the only requirement is to pay the fee. Overall, processes like this are detrimental to the development and GDP of a country, but often exist in "feudal" developing countries.